Tech companies are blamed for problems from increasing rates of depression in young people to the rise of extremism. Fund manager Katherine Davidson considers whether a digital detox should be on the cards.
Netflix documentary The Social Dilemma makes for uncomfortable viewing for users of social media channels such as Facebook, Instagram, Snapchat, YouTube or Twitter.
i.e. pretty much all of us.
And as a sustainability specialist who invests (at the time of writing) in Alphabet , the parent company of Google and YouTube, I find the issues covered extra troubling.
What’s The Social Dilemma about?
The documentary consists mostly of interviews with “witnesses”, tech industry insiders who have grown increasingly uneasy over the impact of their creations, interspersed with the story of a fictional family battling the ills of social media.
As we are all well aware by now – and if you aren’t, go watch the documentary – these tech companies make most of their money by selling advertising space to other companies. As they say: “if it’s free, you are the product”. Their services are free to use, but they are not philanthropic endeavours and need to make money.
Unless you take issue with the basic principle of capitalism, the debate is over how these companies make their money and the unintended consequences of them getting very, very good at it.
Why might sustainable portfolios need a digital detox? I see two main issues: addiction and polarisation.
My concerns: addiction and polarisation
1. Opiate of the masses: addiction
The platforms increase their value to advertisers by maximising user engagement: the more time you spend on their sites, the more adverts they can place. And the more they learn about you, the more they’re able to refine their targeting further and earn more.
As the insiders explain, the services have been designed to create a “dopamine-driven feedback loop”. Dopamine, the “feel good” chemical linked to addictive behaviour, is released through positive social interactions and validation from our peers. Social media delivers social stimuli like a slot machine: irregularly-timed rewards in the form of likes and other notifications.
The aim is to stop you from putting down your device, and it works remarkably well. Many of us are literally addicted to our tech. One study in the US suggested the average person touches their phone more than 2,600 times per day.
It’s affecting the quality of our sleep and has even been linked to a higher risk of road traffic accidents. The pressure for validation and unrealistic examples displayed on social media have also been blamed for rising incidences of depression, eating disorders and suicide – especially for young people.
2. Rules of engagement: polarisation
This leads to the second problem.
Engagement will be higher if the platform serves you content that you will find, er, engaging: this could be stuff you’ve previously shown an interest in or that “people like you” click on.
This is naturally going to be content that chimes with your existing view of the world, and the algorithms work so well that we are less likely to see content that opposes our existing view of the world. This isn’t malicious: it’s designed to provide the results that are most relevant to you. But it can lead to confirmation bias.
We all tend to seek out sources and company that agree with the views we already hold. People of different political persuasions will buy different newspapers or watch different TV channels, where the columnists and anchors represent their views. Technology has ramped this up to the nth degree. This matters for society.
There have been numerous studies suggesting that political polarisation has intensified since the 1990s, especially in the US.
Social media isn’t the only reason but it’s plausibly a significant contributor. Heading into the US election, Pew Research found that 90% of registered voters on both sides said a victory by the opposing candidate would lead to “lasting harm” to the US.
Democracy relies on the premise that everyone’s voice carries equal weight, but when political adversaries become mortal enemies this breaks down.
Stretching these concerns to their logical conclusion, you could say tech firms can be blamed for hate speech and even political violence. I am inclined to think this is an overly simplistic view. The complexities of geopolitical and social schisms cannot be pinned on a single factor.
But what is certainly true is that social media has provided a platform for damaging content and enabled, and potentially encouraged, it to spread further and wider than previously possible.
Can tech companies still be a force for good?
There are two sides to this story and it’s easy to get caught up in the melodrama of tech-bashing.
If you could wave a wand and rid the world of big tech, would you do it? There’s no way I would.
Especially in the last 12 months, life without the services of these companies would have been almost unimaginable, and certainly poorer.
Thanks to YouTube, I can join a live fitness class from my front room. Thanks to WhatsApp, I can meet my friends’ new babies on video calls. I am using Google Maps to plan cycling routes and discover more green spaces in my area, and Microsoft Teams and Skype to keep in touch with colleagues. We can connect with greater ease than ever before, enabling collaboration across the world.
We take a lot of these positives for granted now.
There are also benefits for wider society. As discussed in a previous piece – The “Big Tech” backlash: How sustainable are Google, Facebook and Amazon? – tech companies have played an important role in driving price deflation in consumer goods, promoting innovation and lowering barriers to entry for small businesses.
In recent years, big tech has also been leading the charge on environmental standards and emission reduction, with Microsoft pledging to become the first company to become “lifetime carbon neutral” by 2050.
I see two important routes to mitigate the negative impact of technology: regulation and education.
On regulation, the environment is becoming increasingly hostile. Europe has already taken gradual steps to curtail the powers of big tech and I believe the change in administration in the US will usher in more regulatory activity.
The challenge for regulators is that these are very hard business models to regulate. But we have reached the point where something must be done, even if it is imperfect.
There are some sensible measures that could be taken; for example, enhancing users’ rights over their data (as in Europe), and making it possible to “port” your friends and messages to a new social network as you can your mobile phone number when you move to a new operator.
Splitting up companies to increase competition could also be an option; it certainly seems unlikely that any of the tech giants will be able to acquire as freely going forward.
More transparency on internal algorithms, policies and use of data would help reduce allegations of bias and abuses of power.
I also expect the pressure on tech companies to police content on their platforms will increase as the line between social and traditional media becomes increasingly blurry.
This responsibility could be enshrined in law.
This risks undermining the capital-light, highly-scalable business model that makes tech so attractive to investors. These businesses are becoming increasingly labour-intensive, not just in terms of the number of staff needed (Facebook already has more than 15,000 in the US), but the salaries required to attract people to the job of content moderation.
Education is even more important in my view.
The best approach is probably the same as with other sources of potential harm like drugs and drink – talking openly and honestly about the risks.
I even think there is a case to be made for putting “internet hygiene” on the school syllabus.
The better all of us, and especially young people, understand the techniques the platforms are using, the more we can protect ourselves.
Why I’m still invested in Alphabet
My team and I demand high standards of business ethics and fair treatment of stakeholders from all the holdings in our sustainable strategies.
Yet no company is perfect, and in every instance the challenge is to weigh up the positives and negatives. We can then engage with companies to help tip the scales further towards the positive.
I do believe there is a difference between Alphabet, parent company of Google and YouTube, and the pure social media platforms. Its primary product is search, where it has invested heavily, and this adds huge value to our day-to-day lives. Consumers continue to vote with their feet because Google has the best algorithm.
Regulators, especially in Europe, require Alphabet to make advertising more transparent and not give priority to their own services, which has prevented the most egregious abuses of power. Meanwhile, the company’s other services – Android, Mail, Maps, Meet – are more utilities than activities so I don’t feel addiction is as much of an issue.
Alphabet is also one of the best when it comes to providing user access to data and transparency about how it is used.
The more problematic area is YouTube, which is more akin to the social media platforms in that it hosts user-generated content and has the same incentive to polarise people – though the evidence for this is mixed.
Encouragingly, YouTube changed its algorithm last year so videos that have been borderline cases for deletion are now less likely to be recommended.
YouTube is also experimenting with a “freemium” model (YouTube plus) which could be expanded to reduce the influence of advertising, and to fund greater resource for content moderation.
All that said, we spend a lot of time monitoring and debating Alphabet’s conduct and culture, watching for red flags that might suggest the company’s business ethics are deteriorating.
We scrutinise every story and follow employee portals such as Glassdoor and employee blogs. To date, we have been impressed by the unusually open culture at Alphabet, which can lead to ugly headlines but also ensures debate and challenges to leadership.
But we recognise that this can be difficult to maintain with a company of this size. That’s why we’ll continue to scrutinise and engage with the company to check if our conviction is maintained or more needs to be done.
For us, Alphabet’s activity currently makes it a force for good, but we remain ever-alert to any shift in direction.
Do sustainable funds need a digital detox?
The Social Dilemma paints tech companies as villains destroying the very fabric of society.
This makes for compelling viewing, but the reality is more nuanced. I agree that the psychological effects of social media can be detrimental, with business models that feed on addiction and polarisation.
But this doesn’t mean that tech companies – and their products – are all toxic. As with many things, social media can be beneficial and enjoyable if consumed in moderation.
There’s certainly more that could be done in terms of regulation and education, but we can’t just rely on top-down solutions. At the end of the day, there’s a role for sustainable investors to play in holding these companies to account and encouraging positive change where possible.
A digital detox is too extreme and unrealistic. But a regular digital check-up could be just what the doctor ordered.
Any company references are for illustrative purposes only and are not a recommendation to buy and/or sell, or an opinion as to the value of that company’s shares.
The article is not intended to provide, and should not be relied on, for investment advice or research.
Originally Posted on February 22, 2021 – The Investor’s Dilemma: Do Sustainable Funds Need A Digital Detox?
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realized. These views and opinions may change. Schroder Investment Management North America Inc. is a SEC registered adviser and indirect wholly owned subsidiary of Schroders plc providing asset management products and services to clients in the US and Canada. Interactive Brokers and Schroders are not affiliated entities. Further information about Schroders can be found at www.schroders.com/us. Schroder Investment Management North America Inc. 7 Bryant Park, New York, NY, 10018-3706, (212) 641-3800.
Disclosure: Interactive Brokers
Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Schroders and is being posted with permission from Schroders. The views expressed in this material are solely those of the author and/or Schroders and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.